Sept. 1 (Bloomberg) -- India unexpectedly appointed Finance Secretary Duvvuri Subbarao as the next governor of the central bank, which is fighting the fastest inflation since 1992.
Subbarao will serve for three years, replacing Yaga Venugopal Reddy whose term ends on Sept. 5, Finance Minister P. Chidambaram told reporters in New Delhi today.
Eight of 10 economists surveyed by Bloomberg News expected the government to extend Reddy's term because of his decade-long experience at the Reserve Bank of India.
Subbarao may have to follow Reddy's four-year-old policy of raising borrowing costs as inflation has shown few signs of easing. India's central bank, which prepares monetary policy in consultation with the finance ministry will pull out all stops to check prices ahead of elections due by May 2009.
``Managing inflation, and simultaneously making sure growth isn't hindered, is going to be the biggest challenge,'' said Prasanna Patankar, chief bond trader at Securities Trading Corp. of India Ltd. in Mumbai, a primary dealer that underwrites government debt sales. ``The investor community is also expecting more stability in the immediate term.''
The Reserve Bank governor is appointed by the prime minister, based on the recommendations of the finance minister. Prime Minister Manmohan Singh, who headed the central bank in the early 1980s, pledged this month to bring price gains to a ``reasonable'' level.
Raising Rates
Reddy had raised the central bank's benchmark repurchase rate by 125 basis points to 9 percent since June, when the government increased fuel costs to lower its subsidy bill. The inflation rate jumped to more than 12 percent in the week of Aug. 9 from 8.75 percent before the fuel-price increase.
Altogether, Reddy increased the repurchase rate by 300 basis points since October 2004 to prevent the second-fastest growing economy after China from overheating. He also raised the proportion of funds that lenders need to set aside as reserves by 400 basis points to 9 percent since December 2006 to check money supply from stoking inflation.
To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net;
Subbarao will serve for three years, replacing Yaga Venugopal Reddy whose term ends on Sept. 5, Finance Minister P. Chidambaram told reporters in New Delhi today.
Eight of 10 economists surveyed by Bloomberg News expected the government to extend Reddy's term because of his decade-long experience at the Reserve Bank of India.
Subbarao may have to follow Reddy's four-year-old policy of raising borrowing costs as inflation has shown few signs of easing. India's central bank, which prepares monetary policy in consultation with the finance ministry will pull out all stops to check prices ahead of elections due by May 2009.
``Managing inflation, and simultaneously making sure growth isn't hindered, is going to be the biggest challenge,'' said Prasanna Patankar, chief bond trader at Securities Trading Corp. of India Ltd. in Mumbai, a primary dealer that underwrites government debt sales. ``The investor community is also expecting more stability in the immediate term.''
The Reserve Bank governor is appointed by the prime minister, based on the recommendations of the finance minister. Prime Minister Manmohan Singh, who headed the central bank in the early 1980s, pledged this month to bring price gains to a ``reasonable'' level.
Raising Rates
Reddy had raised the central bank's benchmark repurchase rate by 125 basis points to 9 percent since June, when the government increased fuel costs to lower its subsidy bill. The inflation rate jumped to more than 12 percent in the week of Aug. 9 from 8.75 percent before the fuel-price increase.
Altogether, Reddy increased the repurchase rate by 300 basis points since October 2004 to prevent the second-fastest growing economy after China from overheating. He also raised the proportion of funds that lenders need to set aside as reserves by 400 basis points to 9 percent since December 2006 to check money supply from stoking inflation.
To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net;
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